Actually, my question to you two would be to ask why AA and US bothered to fight the DOJ, was it really worth it, and when the strategic benefits of the merger will be achieved – and why they haven’t been achieved yet?
From the beginning of the whole DL refinery discussion, there have been analysts and participants of this forum that expected that DL would immediately achieve all of the benefits of the refinery strategy, that there would be no obstacles they would have to overcome, and that DL alone would achieve all of the benefits.
Just as with the AA-US merger, THERE ARE huge obstacles that have to be overcome in order to achieve all of DL’s strategic objectives with the refinery and it will take time to achieve all of the benefits. If it was an easy process, everyone would have done it already, right? Good things in life require work and creativity to overcome obstacles.
The issue of renewable identification numbers is not new and came up within the first six months or so of operating the refinery. It is possible that DL knew nothing about the issue when they bought the refinery but it is also possible that they recognized it was a refinery industry issue and that they could still achieve their objectives even if they had to comply with the renewable fuel regulations.
Since AA-US have decided they can still achieve their strategic objectives with the merger even if they have to divest more slots and gates than any other US airline merger has ever faced, I’m not sure why DL should not be able to achieve its strategic objectives with the refinery even with the current regulatory environment.
Given that there is broad opposition to the same legislation from others in the oil industry, even if the effect on DL is uniquely different, the rest of the industry will either have to comply which will mean increased costs for other refiners which ultimately affects the prices of petroleum products. But is very possible – just as AA-US did with the merger – that DL recognizes it is worth suing the government – the part of the story that is new – based on DL’s unique circumstances (remember that we heard the argument that DL, UA, and WN all got their mergers approved so why should AA-US be excluded) to push thru changes that do allow Trainer to be treated differently than other refiners such as Valero, who is also impacted heavily even though they sell refined petroleum products at the consumer and industrial level, something DL does not do.
DL might not achieve all it wants by suing but given there are other lawsuits in process which DL is joining, the chances are high that there will either be revisions to the laws or there will be others who will be more impacted than DL, with the consumer paying the price, including DL’s peers who also buy jet fuel from refineries that have to comply with the regulations.
Further, few here want to acknowledge that DL has already cut its fuel expenses by hundreds of millions of dollars because of a greatly reduced jet fuel crack spread. Some may argue that DL had nothing to do with it but even a rudimentary knowledge of supply and demand shows that DL has put huge amounts of jet fuel on the market and the US is now in the position of exporting jet fuel for the first time in years even while the jet fuel crack spread is lower than it has been for a long time, which has helped DL’s profitability in the midst of a strong airline pricing environment. If supply and demand principles continue, the supply of jet fuel in the US very well might be reduced while DL will be in a position of controlling a significant portion of its own jet fuel needs and gain the strategic advantage relative to its peers which it has not yet achieved. The refinery story is far from finished.
As for the “almighty DL”, robbed, whether DL is almighty or not, DL has succeeded as well as it has since emerging from BK because they have fully recognized what they have needed to do strategically and have executed against those needs nearly flawlessly including merging with NW and reaping the benefits from the merger, reworking DL’s operational performance to be top-tier, and expanding and succeeding in key industry markets including those where other carriers are strong.
Maybe the refinery will prove to be a nut that is too difficult for DL to crack but their track record over the past 7 years or so shows that they know what they have to do to succeed at each of their strategic objectives and manage to execute against those plans.
